Minneapolis Fed Forecasts Economic Downturn will Continue Through 2009 in the Ninth District

Minneapolis, February 11, 2009—
The economic downturn will continue through 2009 in the Ninth Federal Reserve District, according to the Federal Reserve Bank of Minneapolis' forecasting model. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan. Employment by year-end is expected to be down from year-earlier levels and unemployment rates are expected to increase.

“Even though the employment forecast is disappointing, some good news is forecast for personal income which is forecast to increase modestly, and for housing units authorized, which are expected to increase after reaching historically low levels in fourth quarter 2008,” said Toby Madden, regional economist at the Minneapolis Fed.

The 2009 forecast is based on predicted changes from fourth quarter 2008 to fourth quarter 2009, except for the unemployment rate, which is expressed in percent over the fourth quarter. The model is based on data through fourth quarter 2008 and does not incorporate recent and proposed monetary and fiscal policy actions.

Nonfarm Employment

Employment is expected to contract in 2009. Nonfarm employment will decrease in all areas except North Dakota, where growth of 1.1 percent is expected. The largest drop (6 percent) is expected in the Upper Peninsula of Michigan, followed by Wisconsin (3.2 percent), South Dakota (2.6 percent), Minnesota (2.3 percent) and Montana (0.5 percent).

Unemployment Rate

Unemployment rates in the fourth quarter of 2009 are predicted to climb above historical averages in all areas of the district. The highest unemployment rates are expected in the Upper Peninsula (14 percent), followed by Minnesota (7.8 percent), Wisconsin (6.9 percent), Montana (5.8 percent), North Dakota (4.4 percent) and South Dakota (4.2 percent).

Personal Income

Personal income is expected to grow modestly, but nevertheless slightly faster than in 2008. Personal income is expected to rise in 2009 in all states except North Dakota. The expected decrease in North Dakota
(-15.4 percent) is likely attributed to the volatile nature of farm income.

Housing Units Authorized

After falling for several years to historically low levels, housing units authorized in 2009 are expected to increase in all states. In Minnesota, housing units authorized are expected to increase 102.9 percent to a seasonally adjusted annual 17,700 units in fourth quarter 2009 from a seasonally adjusted annual 8,700 units in fourth quarter 2008. The large percent increase is relative to the historically low level reached in the fourth quarter; the series peaked in Minnesota during fourth quarter 2003 at 41,500 units. Other increases in housing units authorized include Montana (18.1 percent), Wisconsin (10 percent), North Dakota (4.4 percent) and South Dakota (4.1 percent).

As one of the 12 Federal Reserve Banks, the Federal Reserve Bank of Minneapolis contributes to a variety of Federal Reserve System functions, including operation of a nationwide payments system, distribution of the nation's currency and coin, supervision and regulation of member banks and bank holding companies, and serving as a fiscal agent for the U.S. Treasury. Additionally, the president of the Minneapolis Fed serves as a member of the Federal Open Market Committee, the monetary policymaking arm of the Federal Reserve's Board of Governors. Together with its branch in Helena, Mont., the Minneapolis Fed serves the Ninth Federal Reserve District, which includes Minnesota, Montana, North and South Dakota, 26 counties in northwestern Wisconsin and the Upper Peninsula of Michigan.